Apparently, not as many as we thought.

I’ll add to your two accurate issues of affordability and unemployment.

3. Can we short-sell our way out of this?

An excruciating idea to those of us in the business, but as long as the lenders are going to fumble around trying to process short sales, it’s going to provide the first option for sellers.

I wish lenders would either streamline the process, or do away with them altogether, but for now we’ll endure a painful road that greatly benefits the sellers – free rent for months (or years) and less impact on their credit (allegedly).

I hate to say it, but I think Mr. Mortgage sold us a bill of goods regarding the “PAY ARM TSUNAMI”. Maybe he realizes the jig is up and thats why he seems to have disappeared recently.

In a way, I am just glad to finally know it was more hype than anything. My biggest fear was I would buy and THEN the tsunami would come, putting me instantly underwater – now I dont have to worry about this.

As others have said, keys now are affordability and unemployment. This isnt over yet. Still im glad thats one less “issue” we need to obsess over.

Yes, I do remember this map. It showed the percentage of payment option loans among all loans issued during some part of 2006. There are at least three reasons why there’s no contradiction with Jim’s numbers:

- Payment option boom only lasted roughly two years, 2005 and 2006. Relatively few neg-ams were issued in 2004 and before. Neg-am business ended in 2007. Loans originated in 2005 and 2006 are probably no more than 20% of all loans outstanding. If 35% of those were neg-ams, that would mean that 7% of all loans in San Diego were neg-ams.

- Some of these loans have already defaulted.

- The original assumption (that neg-ams were concentrated in coastal north county) was completely unfounded. In fact the average balance of all outstanding CA neg-ams is less than 500k. Neg-ams were probably far more popular in San Marcos and Chula Vista than in Encinitas.

Gotta keep things in perspective.

http://www.businessweek.com/common_ssi/map_of_misery.htm

I think the map was from 2006. County-wide the percentages of these loans would appear to be much higher.

Most people in that income range have salaries that are directly or indirectly (stock options, bonus pools) tied to total company profits. Across virtually every business, profits are down in 2009. So incomes are down (and very significantly in many cases).

Compounding the drop in earned income, every other asset class or investment is down (corporate bonds, money market rates, stock portfolios, real estate, commodities, etc). So your high income earners are feeling the pinch more so than the medium income earners because their incomes are down and their portfolios most likely got much smaller. If you have a $20k portfolio and you lose 40%, that is meaningless to someone with a $500k portfolio who lost $200k.

On top of the income drop and the portfolio squeeze, federal and state taxes are going up for those in that income range.

This analysis does not even consider job losses, just declines in income and net worth.

So the $1m market will be tough for a while. Anyone with a good down pay and a steady $250k income does not want the current inventory that is being offered at $1m.

I share the frustration of other fence sitters but only have to look at the numbers to regain my patience. If the coastal markets are indeed in for a year of constant 2-3% monthly drops (my opinion), your entire tax deduction is swallowed up in a month or two of price drops.

Petco Park isn’t going to be the only meltdown in San Diego this year.